A recent survey commissioned by BMO Wealth Management in the US has highlighted how important it is for blended families to consider their estate planning carefully. Non-traditional families are becoming the new normal, and this has major implications for what happens to your estate when you die. The key to blended families handling their estate planning well? Communication.
The Estate Planning Survey
BMO Wealth Management (U.S.) this week released a report that explores the complexities of the American family structure and the resulting impact on estate planning, revealing that many families have a long way to go in effectively communicating their plans for the future with their loved ones.
The report – titled Estate Planning for Complex Family Dynamics – surveyed 1,008 Americans age 18 and older about their views on inheritance, communication about estate planning within their families, and care issues as they grow older. Two-thirds of the respondents had adult or minor children.
“As family dynamics become more complex, the potential for conflict to play out after a death increases,” said Jason Miller, National Head of Wealth Planning, BMO Wealth Management (U.S.). “It is critical to implement and communicate an estate planning strategy in a way that will help prevent conflict and promote harmony.”
When asked if their parents had shared their estate distribution plans or details of their Wills and executor selections, only 28 percent of respondents indicated having had these discussions. Additionally, 40 percent of those surveyed felt that the distribution of their parents’ estates was not fair, with unmarried respondents most likely to indicate this.
When asked what constituted a fair distribution, respondents to the survey had many different thoughts. Most thought that assets should either be divided equally between the children, or that the children should each receive an equal value from the estate. Together, these two answers accounted for over 60% of the responses. Only 15% of respondents felt that it would be fair to distribute assets on an unequal basis, with reasons such as financial need or the closeness of the relationship with the child being cited.
The report also found that 25 percent of married adults indicate that only their spouse knows the location of their Wills and Powers of Attorney, with 52 percent reporting they do not have a Will in place. That percentage rose to 56 percent among those respondents age 35-54.
While the rate at which marriage occurs has been dropping since the year 2000, the rate of divorces and annulments has also been dropping. Every year there are more than twice as many marriages as there are divorces and annulments. Many divorced individuals start new relationships. In the United States 9.5% of all individuals age 15 and over are currently in their second marriage, and 2.4% of individuals over age 15 are enjoying their third or subsequent marriage. There are also close to 1,000,000 same-sex couples in the U.S., of whom almost 40% of are married.
What does this mean? There are more blended families than ever before.
Blended Families: A Case Study
Jane called recently to discuss a situation that she recognizes as a problem in the making. She has two adult children, Patrick and Ann. Ann is her child from her first marriage, and Patrick is her son from her second marriage. Patrick was going through some rough times when he moved back into the family home with Jane and her second husband, Patrick’s father, Robert.
Robert and Patrick are in the construction and home renovation business. They’ve done well at times, but they can’t seem to put together twelve good months in a row. Meanwhile, they’ve kept the house in good repair and made some additions, but Patrick doesn’t pay rent. The house represents Jane’s entire estate, which her will directs is to be divided equally between Patrick and Ann, providing that they allow Robert to remain in the house if he survives Jane until he dies. But Ann is worried that if her mother dies, Robert and Patrick will continue to live in the house, and that Patrick will receive the entire estate once his father dies. She will be left with nothing.
Jane’s health has begun to fail over the past few months, and Patrick seems unlikely to ever want to move out. Ann’s husband recently died of cancer, leaving her a forty-five-year-old widow with three kids. Ann is surviving somehow, but when her mother dies, she will desperately need her half of the estate.
This is a common problem for blended families. Although there is an unspoken assumption that the surviving spouse will ‘do the right thing’, the opposite is usually true. The surviving spouse generally looks after their own children to the detriment of the children from the first relationship.
Communication is Essential for Blended Families
Having essential and open conversations with future heirs can help to reduce conflicts, and acclimatize heirs to the idea that they will not necessarily inherit what – or how much – they expect, especially if the intention is not to be equal or fair. Essential conversations with loved ones also bring up the issue of sentimental assets and help to determine who most cherishes those special assets. Dealing with this issue up front may help to avoid the problem of valuable personal effects and sentimental assets going missing from the estate. This is especially important in blended families, which can be made more difficult if certain treasured assets are not distributed as planned to your heirs.
An important element in the communication process is letting your future executor know where to find your Will when it is required. Of the respondents in the BMO Wealth Management survey that have Wills in place, many have done a good job of providing information about its location or access to original copies of the Will.
Regardless of the chosen method of communication, a well-thought-out estate plan will have a better chance of a seamless transition, says Bryan Mitchell, an Accredited Specialist in Succession Law (Wills and Estates). “It’s the surprise that gets you every time. If there are no surprises, everything generally goes smoothly.”
In fact, communication is probably the secret weapon to ensuring a blended family maintains harmony, says Bryan.